February 13, 2020 by Greg Meckbach
Aviva Insurance Company of Canada and Traders General Insurance Company have permission to use consumers’ credit information as an auto rating factor, the Nova Scotia Utility and Review Board announced Monday.
Insurers are specifically prohibited from using credit information as an auto rating factor in both Ontario and Newfoundland and Labrador, the NSURB noted.
But in Nova Scotia, Aviva and Traders (which is part of the Aviva group) proposed to add a “responsibility factor.” This means Aviva and Traders would use customer credit information as a new rating factor. Before giving Aviva the green light, NSURB considered whether current Nova Scotia regulations, which do not specifically prohibit the practice, nonetheless preclude auto insurers from using credit scores to rate auto.
The board considered Section 2 of Nova Scotia Regulation 183/2003, Matters Considered in Automobile Insurance Rates and Risk-Classification Systems Regulations, which says a rating factor may not be subjective, arbitrary, contrary to public policy, or one that “bears little or no relationship to the potential risk to be assumed by the insurer.”
In giving Aviva the go-head, NSURB took into account Aviva’s assurance that a customer would not be required to provide credit information in order to obtain insurance.
“A customer may be able to obtain a better rate if [credit rating] information is provided, but won’t be denied insurance if they do not. Considering all of this, and in the absence of specific evidence providing a justification for doing otherwise, the board finds that approving the proposed rating variable would not be contrary to public policy,” NSURB member Stephen McGrath wrote for the board in its ruling.
The board ordered Aviva and Traders to provide an update on whether experience emerges as expected for the responsibility factor when they start the next round of rate approvals this December.
In Ontario, insurers may use credit scores to rate home insurance but not auto. The Insurance Brokers Association of Ontario opposes the use of credit scores to rate home or auto insurance. IBAO has said in the past that it is not clear to brokers exactly how the credit scores are used and that credit rating has nothing to do with the risk that is being covered.
For their part, insurers tend to argue there is a statistical correlation between how insureds manage their personal finances, as represented by the consumer credit score, and the likelihood that they will have to make an insurance claim. For example, if insureds are careful managing their finances, they are also more likely to be diligent in other areas of their lives, such as doing regular maintenance and upkeep on their personal property, as insurance company CEOs have explained the correlation to Canadian Underwriter in the past.
In Nova Scotia, Aviva supplied confidential data supporting its argument that credit information is predictive of risk in property insurance and that this would carry over to auto insurance, McGrath wrote.